Politics, psychology hurt economy, forecaster says

Briefing.com’s Rosen takes Forecaster of the Month honors

WASHINGTON (MarketWatch) — The economy has its weaknesses, but its main problems are political and psychological, says Jeffrey Rosen, chief economist for Briefing Research and the winner of the MarketWatch Forecaster of the Month Award for June.

Rosen argues that the economy could be growing at a better rate if businesses and consumers weren’t so frightened. “We have the ability to grow better than 3%,” he said.

“Conditions are better now than they have been,” Rosen said in an interview. The underlying trends in the economy are positive, he said.

Banks, corporations and households have been repairing their balance sheets. Housing is on a “strong uptick.” And there’s a lot of pent-up demand for consumer durable goods, including autos.

Jeffrey Rosen
Economist, Briefing.com

Forecast

Actual*

ISM

53.0%

53.5%

Nonfarm Payrolls

175,000

69,000

Trade gap

-$49.9 bln

-$50.1 bln

Retail sales

-0.3%

-0.2%

Housing starts

710,000

708,000

Industrial production

0.1%

-0.1%

Consumer price index

-0.3%

-0.3%

Durable-goods orders

1.0%

1.1%

New home sales

350,000

369,000

Consumer confidence

63.0

62.0

* Subject to revision

“The potential for growth is there,” he said. The question is, when are “the animal spirits” going to become positive?

The psychology isn’t favorable now. There’s a “herd mentality” among businesses, who are already “worried about what demand will be like at the end of the year,” he said.

Some of the worry is over Europe, whether the euro crisis will morph into the kind of disaster that befell the global economy in 2008. Rosen doesn’t think it’ll get to that point, at least not in its impact on the U.S. economy.

A second big worry is the so-called fiscal cliff at the end of the year, when tax rates will rise and federal government spending will be cut back automatically as a result of last year’s budget agreement. Once again, Rosen thinks the fears are overblown, because Washington’s politicians will come to an agreement before the economy goes over the cliff. But that doesn’t mean the uncertainty isn’t having an impact now.

The Federal Reserve will also step up, Rosen believes.

“The Fed is acknowledging missing its targets” on employment and inflation, he said, which means “the Fed has to do another quantitative easing,” even though it wouldn’t be “that strong.”

“You have to do it for confidence reasons,” Rosen said.

In the June forecasting contest, Rosen beat 40 other forecasting teams to win his second monthly award. His forecasts for durable-goods orders, the consumer price index and housing starts were the most accurate of any of the forecasters. His forecasts for the trade gap and for retail sales were also among the most accurate.

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Comcast's Michael Angelakis was the most highly compensated CFO for companies in the S&P 500. Who rounded out the top five? (Photo: Bloomberg News)

The runners-up in the June contest were Joe Lavorgna’s team at Deutsche Bank, Neal Soss’s team at Credit Suisse, Steven Ricchiuto of Mizuho Securities, and Nigel Gault and Paul Edelstein of IHS Global Insight.

The median forecasts that MarketWatch publishes in the economic calendar come from the projections of the 15 economists who have scored the highest in our contest over the past 12 months, as well as the forecasts of the most recent winner. See our economic calendar and consensus forecast.

Over the past year, the top economists are, in order: David Greenlaw and Ted Wieseman of Morgan Stanley, Jim O’Sullivan (formerly of MF Global but who will soon join High Frequency Economics), Lou Crandall and Bill Jordan of ICAP, Nigel Gault and Paul Edelstein at IHS Global Insight, Michael Feroli of J.P. Morgan, Michael Moran of Daiwa Capital Markets, Spencer Staples of EconAlpha, Eric Green’s team at TD Securities, Sherry Cooper’s team at BMO, Aaron Smith and Ryan Sweet of Moody’s Analytics, Julia Coronado of BNP Paribas, Peter D’Antonio of Citigroup, Stephen Stanley of Pierpont Securities, Jan Hatzius’s team at Goldman Sachs, and Brian Jones of Societe Generale.

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